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The Bahamas has mandated banks and plans to issue shortly, but
against an adverse background for its debt sustainability:
elsewhere, ENI, Japan Tobacco and CaixaBank all demonstrated
continuing demand for riskier assets, despite several Latin
American deals being postponed.
Emerging markets
On 6 October, Latin Finance reported that Bahamas mandated banks
and started marketing a dollar deal. In its May budget, the
government projected a deficit in 2020/21 of USD1.3 billion or
11.6% of GDP, the "largest deficit…in the history of The Bahamas".
Preliminary data for 2019/20 released at end-August showed the
deficit for that year increasing to USD788.1 million versus
USD219.3 million in the prior fiscal year (its lowest in a decade),
reflecting a broadly-based 55.2% contraction in receipts while
expenditures grew 8.8% to address COVID-19 related outlays and
damage from Hurricane Dorian.
Our economist, Claudia Wehbe, warns in her latest monthly
outlook that "Fiscal consolidation remains a critical cornerstone
for rebuilding fiscal and external stability" while noting the need
to control the weak performance of state owned enterprises, notably
in the provision of electricity, water and airline services.
Mongolia claims to have "made a debt restructuring" with the
issuance on 29 September of USD600 million of 5.125% 5.5-year
bonds. According to Minister of Finance Chimediin Khurelbaatar, the
new "Nomad" bond will fund the repayment of USD500 million 10.875%
outstanding debt maturing in April 2021. Repayment of a second
issue - from 2018 - has been delayed to avoid undue funding
pressure. Nevertheless, the minister claimed that the refinancing
will lower Mongolia's annual interest burden from USD203 million to
USD176.4 million.
According to Bloomberg reports, TWF - Turkey's sovereign wealth
fund - has mandated banks for a debut international bond issue,
which it suggests will be arranged within 2020. In prior reports
the same source has suggested it will seek to raise USD2
billion.
Slovenia has announced on 5 October its intention to redeem two
issues maturing in January and April 2021 worth a combined EUR2.6
billion, and to undertake a new issue shortly, with the goal of
refinancing its debt at lower costs. This followed shortly after it
was upgraded by Moody's from BAA1 to A3, with the agency citing
expectations of renewed debt reduction in 2021 and citing the
improvement in the condition of the country's banking system,
including the privatization of its largest banks.
Three Latin American bond deals have been withdrawn in recent
weeks. On 2 October, Brazilian outsourcing company Atento withdrew
a planned bond sale and repurchase of existing debt, planning to
review the situation again "once market conditions stabilize". It
follows the withdrawal of an issue and debt buyback last week by
GNB Sudameris, reportedly as investors pushed for bond pricing of
over 9% for the planned 10-year deal, versus expectations of mid-8%
area, and Brazilian oil and gas firm Petro Rio withdrawing its
planned USD450 million five-year deal, citing oil market
uncertainties and recent price volatility in mid-September.
Other debt
Italian energy company ENI has obtained board approval on 1
October for a program of hybrid debt issuance worth up to EUR5
billion by end-June 2022. The program is intended to "prefund the
future financial needs and to maintain a well-balanced financial
structure".
The company sold a two-tranche hybrid deal on 6 October, placing
EUR1.5 billion each of perpetual debt callable after 5.25 and nine
years. The two tranches were priced at 2.75% and 3.375%
respectively, with aggregate demand reaching EUR14 billion,
particularly from the UK, France, Italy and Germany. The company's
statement noted that the deal is the largest ever hybrid by an
Italian corporate borrower.
Japan Tobacco has placed a debut Euro-denominated two-tranche
hybrid bond which was more than six times subscribed. It placed
60.5-year debt callable after 5.5 years and 63-year liabilities
callable after 8.25 years, yielding 2.376% and 2.876% respectively
to initial call, versus price guidance of 2.875%-3% and
3.375-3.5%.
The sale followed a USD6.25 billion five-part sale by BAT, with
their success indicating that issuers in sectors deemed "harmful"
from an ESG perspective still have potentially-ample market access,
although some investors such as BNP Paribas Asset Management and
Axa specifically rejected involvement.
Alongside the corporate sales of hybrid debt, Spain's Caixabank
- which recently announced its merger with Bankia - enjoyed clear
success in the Additional Tier 1 market. It sold EUR750 million of
perpetual debt on 1 October first callable after seven years, with
a coupon of 5.875%, 0.5% under initial price guidance. Demand
reached EUR4.1 billion, which Caixabank claimed to be the largest
AT1 order book for a Spanish bank in 2020.
It was followed by Nykredit, the Danish mortgage lender, which
launched a Euro-denominated perpetual deal callable after six years
with price guidance at 4.75%, tightening pricing by 50 basis points
in response to demand. This was followed by Credit Agricole
launching a EUR750 million AT1 deal, with price guidance of 4.75%
until the first call after 7.5 years.
At the time of writing, media reports suggest that Gazprom also
is studying perpetual issuance in both dollars and Euros.
Equity
14 US SPAC share deals were completed last week, raising USD5.2
billion, versus the USD1.6 billion obtained from the nine
conventional IPOs conducted. The largest SPAC sale was for Apollo
Global, which raised USD750 million for its Strategic Growth
Capital fund.
Multiple media reports claim that Airbnb will seek to raise USD3
billion in its IPO, with this potentially taking place in
December.
The high-profile direct listings - the start of share trading
without a new placement or secondary sale - by Palantir and Asana
failed to generate much positive momentum. Trading opened well
above the indicative price levels suggested: Palantir's first trade
was at USD10 and it closed first day trading at USD9.73, versus a
reference price of USD7.25 per share, while Asana closed first day
trading at USD28.8, 37% above its USD21 reference price. However,
the two firms ended their first week's trading down by eight and
four percent relative to their opening levels.
BNDES raised BRL6.9 billion (USD1.2 billion) from the placement
of its full 11% stake in pulp and paper firm Suzano: on 1 October,
it sold 150.2 million shares at BRL46 each. The sale forms part of
the Brazilian development bank's wider asset disposal program, with
it having placed holdings in Vale, Petrobras and Marfrig previously
(with the Petrobras block having raised USD5.2 billion in
February).
Kazakh financial group Kaspi - which owns Kazakhstan's leading
retail bank with a 32% share of retail loans in 2019 using a
largely digital platform- has started pre-marketing for a GDR
listing in London seeking to sell USD550 million equivalent on
behalf of existing shareholders. The deal is reported to have been
underpinned by interest from several large funds, suggesting the
deal has a strong likelihood of successful completion: the firm
withdrew a prior attempted sale in 2019. If successful, the deal
would be the first Kazakh share sale in London since AO Alliance
Bank in 2007.
Outlook and implications
The Bahamas will provide an interesting test of market appetite
for Caribbean debt risk. Like its peers in the region, it faces a
challenging upward trend in its debt stock, and multiple adverse
factors impacting its government deficit in 2020 and
thereafter.
The planned sale of debt by Turkey's sovereign wealth fund is
also likely to prove testing, given the country's unconventional
monetary policy (at least until recently) and growing political
risks relating to Turkey, including its involvement in several
regional military conflicts.
Market developments indicate a mixed risk environment. The
multiple successful hybrid deals completed in the last week,
notably that for ENI, Italy's largest hybrid to date, indicate
continues appetite for riskier, long-duration assets. Similarly,
Egypt and Bahrain have completed successful issuance in recent
weeks, showing healthy demand for riskier MENA sovereign risk
assets. Counterbalancing this, several Latin American deals have
now been pulled on grounds of adverse market conditions and price
sensitivity, without necessarily also having adverse credit
fundamentals.
Within equity markets, BNDES's latest asset sale is a positive
indicator, both for the scope to complete large deals in a more
testing market environment and for both the bank and Brazil's
fiscal position, showing continuing scope to raise funds through
indirect privatization.
Posted 08 October 2020 by Brian Lawson, Senior Economic and Financial Consultant, Country Risk, IHS Markit